Abstract

We study the relationship between order flow and volatility. To this end we develop a comprehensive framework that simultaneously controls for the effects of macro announcements and order flow on prices and the effect of macro announcements on volatility. Using high-frequency 30-year U.S. Treasury bond futures data, we find a statistically and economically significant relationship between the absolute value of order flow and volatility. Moreover, this relationship is robust, inter alia, to a number of factors including the introduction of liquidity effects, use of data measured over a different frequency, and market conditions.

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doi.org/10.1016/j.jempfin.2014.07.002, hdl.handle.net/1765/69194
Econometric Institute Reprint Series , ERIM Top-Core Articles
Journal of Empirical Finance
Erasmus Research Institute of Management

Opschoor, A, Taylor, N, van der Wel, M, & van Dijk, D.J.C. (2014). Order flow and volatility: An empirical investigation. Journal of Empirical Finance, 28, 185–201. doi:10.1016/j.jempfin.2014.07.002